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MODULE 4 PROJECT COST ESTIMATING AND MANAGEMENT Advanced Project Management 16 – 17 October 2018 Facilitator: Mr Mondli Mbambo
MODULE 4PROJECT COST ESTIMATING AND
MANAGEMENT
Advanced Project Management
16 – 17 October 2018
Facilitator: Mr Mondli Mbambo
Module Purpose
Project Cost Management
Project Costing Knowledge
Costing Skills
2
Costing Inputs Costing Outputs
Co
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Co
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Project Cost Management
Plan Cost Management
Estimate Costs
Determine Budget
Control Costs
Includes the processes involved in planning,
estimating, budgeting, financing, funding,
managing, and controlling costs so that the project can be completed within the approved budget. The
Project Cost Management processes are:
Project Cost Management…
• Is primarily concerned with the cost of the resourcesneeded to complete project activities
• Should consider the effect of project decisions onthe subsequent recurring cost of using, maintaining,and supporting the product, service, or result of theproject
• Another aspect of cost management is recognizingthat different stakeholders measure project costs indifferent ways and at different times
Project Cost Management
Plan Cost Management
Estimate Costs
Determine Budget
Control Costs
Includes the processes involved in planning,
estimating, budgeting, financing, funding,
managing, and controlling costs so that the project can
be completed within the approved budget. The Project
Cost Management processes are:
Plan Cost Management is…• The process of defining how the project costs will be estimated,
budgeted, managed, monitored, and controlled
• The key benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project
Project Cost Management
Plan Cost Management
Estimate Costs
Determine Budget
Control Costs
Includes the processes involved in planning,
estimating, budgeting, financing, funding,
managing, and controlling costs so that the project can
be completed within the approved budget. The Project
Cost Management processes are:
Estimate Costs is…
• The process of developing an approximation of thecost of resources needed to complete project work
• The key benefit of this process is that it determinesthe monetary resources required for the project
• This process is performed periodically throughoutthe project as needed
Estimate Activity Costs
Activity
Labour?
Materials?
Equipment?
Facilities?
Subcontractor & consultants?
Travel?
Reserve?
Cost Estimating
• A cost estimate is a quantitative assessment of the likely costs forresources required to complete the activity
• It is a prediction that is based on the information known at a givenpoint in time
• Cost estimates include the identification and consideration of costingalternatives to initiate and complete the project
• Cost trade-offs and risks should be considered, such as make versusbuy, buy versus lease, and the sharing of resources in order to achieveoptimal costs for the project
Project Cost Management
Plan Cost Management
Estimate Costs
Determine Budget
Control Costs
Includes the processes involved in planning,
estimating, budgeting, financing, funding,
managing, and controlling costs so that the project can
be completed within the approved budget. The Project
Cost Management processes are:
Determine Budget is…
• The process of aggregating the estimatedcosts of individual activities or workpackages to establish an authorized costbaseline
• The key benefit of this process is that itdetermines the cost baseline against whichproject performance can be monitored andcontrolled
Drawing an Expense S CurveMonth 1 Month 2
Activity Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8
A 50 50
B 50 50 50
C 10 10 10 10
D 30 30 30
Expenses per week
50 50 60 60 60 40 30 30
AccumulatedExpenses
50 100 160 220 280 320 350 380
Project Cost Management
Plan Cost Management
Estimate Costs
Determine Budget
Control Costs
Includes the processes involved in planning,
estimating, budgeting, financing, funding,
managing, and controlling costs so that the project can
be completed within the approved budget. The Project
Cost Management processes are:
Control Costs is…
• The process of monitoring the status of the project to update costsand managing changes to the cost baseline
• The key benefit of this process is that the cost baseline is maintainedthroughout the project
Project cost control includes:• Influencing the factors that create changes to the authorized cost baseline,
• Ensuring that all change requests are acted on in a timely manner,
• Managing the actual changes when and as they occur,
• Ensuring that cost expenditures do not exceed the authorized funding byperiod, by WBS component, by activity, and in total for the project,
• Monitoring cost performance to isolate and understand variances from theapproved cost baseline,
• Monitoring work performance against funds expended,
• Preventing unapproved changes from being included in the reported costor resource usage,
• Informing appropriate stakeholders of all approved changes and associatedcost; and
• Bringing expected cost overruns within acceptable limits.
Determine Actual Cost
• Keep track of the amount of actual cost expended and
committed costs so that they can be compared to the budgeted cost
• Collect data regularly
Earned Value
•How is the project doing?
• Earned Value is an integrated planning and
control tool
Page 253
Need for Earned Value
•One project was reported to be 99% complete for
a year! Why?
•Unable to distinguish between planned
manhours, actual manhours & earned manhours
• Planned: estimate (intent)
• Earned: measure of work done
• Actual: as recorded on the clock cards
BAC % completeX
Page 254
Earned Value Terminology
Planned Value (PV)
Earned Value (EV)
Actual Value (AV)
Budget at Completion
(BAC)
Percentage Complete
(PC)
Estimate at Completion
(EAC)
Schedule Variance
(SC)
Cost Variance
(CV)
SPI & CPISchedule & Cost
Performance Indices
Analyse Cost Performance
How do you feel about this?• R64 000 budgeted through end of week 8
• R68 000 actually expended
• R54 000 earned value
Page 256-7
Earned Value Equations
Earned Value EV= PC x BAC
Schedule variance SV = EV– PV
Schedule variance% SV% = SV/PV
Cost variance CV = EV– AV
Cost variance % CV% = CV/AV
Estimate at completion EAC = (AV/EV) x BAC
Performance Indices
• Schedule performance index (SPI) compares theearned value with the plan to give an indication ofperformance relative to the schedule
• An index of 1.0 or 100% indicate adherence toschedule
• If it is less than 1, the project is behind schedule
• SPI = EV/PV
Cost performance index (CPI)
• CPI = EV/AV
• An index of 1.0 (or 100%) indicates adherence to budget
• If it is greater than 1.0, indicates cost savings
• If it is less than 1.0, indicates over expenditure
Let’s Analyse: Case Studies
Case Planned Value (PV) Actual Value (AV) Earned Value (EV)
1 800 800 800
2 800 600 400
3 800 600 1000
4 800 1200 1000
5 800 1000 1200
PROJECT QUALITY MANAGEMENT
Plan Quality
• Identifying quality requirements
Manage Quality
• Translating the quality management plan into executable quality activities
Control Quality
• Monitoring and recording the results – assess performance
Project Quality Management
• Includes the processes for incorporating the organization’s qualitypolicy regarding planning, managing, and controlling project andproduct quality requirements in order to meet stakeholders’objectives
• Project Quality Management also supports continuous processimprovement activities as undertaken on behalf of the performingorganization
PRESIDENT’S BIRTHDAY PART
FOR PRACTICALS PURPOSE
President’s Birthday Party
Venue Catering Music Invitations
A. Select the Venue
B. Book the Venue
C. Pay deposit for
venue
D. Set-up the Venue
E. Hold event
CakeFood & Drinks
F. Purchase ingredients
G. Make cake
H. Deliver cake
I. Select caterers
J. Book caterers
K. Set menu
L. Confirm numbers
M. Book DJ
N. Pay deposit for
DJ
O. Set up stage
P. Settle account
Q. Design invitations
R. Print invites
S. Distribute invites
T. Confirm RSVP
U. Finaliseseating plan
Activity Duration in Days Predecessor Person Responsible
A. Select the venue 2 - Victor
B. Book the venue 1 A Khanyisile
C. Pay deposit for the venue 1 B Victor
D. Set-up the venue 4 T Caterers
E. Hold event 1 D,H,K,L,O,U Tamara
F. Purchase ingredients 1 - Ramasilo
G. Make cake 1 F Ramasilo
H. Deliver cake 1 G Ramasilo
I. Select caterers 2 - Chris
J. Book caterers 1 I Veliswa
K. Set menu 1 J Chris
L. Confirm numbers 1 T Veliswa
M. Book DJ 1 - Lebo
N. Pay deposit for DJ 1 M Mpho
O. Set up stage 2 N DJ
P. Settle account 1 E Lebo
Q. Design invitations 3 C Victor
R. Print invites 2 Q Tamara
S. Distribute invites 5 R Ramasilo
T. Confirm RSVP 3 S Khanyisile
U. Finalise seating plan 2 T Tamara
